Calpine powered up by arbs; Matria gains; Nextel Partners soars; two new deals emerge

By Ronda Fears

Nashville, June 23 - While flow was still described as slack, convertibles had a decidedly firmer tone Wednesday. Calpine Corp. converts continued to track a higher beam on refinancing hopes and on signals coming from JunkLand, and Matria Healthcare Inc. also headed north on some high-yield buying.

Nextel Communications Inc.'s new $4 billion bank revolver was at the center of a late-day spurt of buying in Nextel Partners Inc. - both in the convertibles and the stock, as a short-covering measure - on speculation that the "war chest" of cash Nextel is holding might be used to pay for a wedding party soon.

New paper recently put into circulation from Advanced Medical Optics Inc., Priceline.com Inc., and Chiron Corp. also were better bid. On whole, new issues provided the bulk of activity, dealers noted.

"You can't say there's a lot of conviction out there, still, because it was such a thin market," said a sellside trader, "but most everything seemed firmer today."

In the primary arena, there was an overnighter from American Financial Realty Trust that became the market's first deal to be reoffered below par by the underwriters in a long while. In fact, the practice that was so prevalent in the second half of 2003 has not been seen but on a handful of deals so far this year.

There also was a tiny $60 million issue from Infocrossing Inc. in the mix, but details on it were scarce.

AFR deal reoffered at 98-99

American Financial Realty Trust issued $300 million of 20-year convertible notes with a 4.375% coupon and 27% initial conversion premium, and joint bookrunners of the bought deal - Deutsche Bank Securities and Banc of America Securities - were reoffering it at 98 to 99 to entice buyers.

Final terms are to be set before the issue frees to trade Thursday. The reoffer price would bump the yield to 4.6% to 4.83% and effectively move the premium to 24.46% to 25.73%.

Also, holders will have full dividend protection by way of a conversion ratio adjustment as well as cash takeover protection via a premium make-whole provision.

American Financial Realty Trust shares closed Wednesday up 6 cents, or 0.43%, to $14.05. In after-hours trading, the stock was down 37 cents, or 2.63%, to $13.68.

Calpine gains on eternal hope

Calpine securities have been on a wild ride this year, peaking in first quarter only to fall on waves of refinancing fall-through fears after a junk bond deal flopped in February. But convertible traders said optimism that the independent power producer's refinancing plans will come to fruition is holding firm.

A buyside convertible trader also noted that some buying "has to be attributed to [Calpine] making a presentation to the investment community on Thursday."

The Calpine 5.75% convertible preferred, the High Tides, are buoyed in particular by that sentiment, as the issue is viewed as the next in line among its convertibles to be refinanced after the company redeemed its 4% convertibles.

But the new Calpine 4.75% convertible bonds also got a huge lift Wednesday as hedge fund players were buying, albeit in low volume, on cue from signals in the junk bond market recently, traders said.

The Calpine 5.75s added 0.5 point to 48.625 bid, 49.125 offered.

Calpine's 4.75s shot up 1.25 points on swap, a sellside convert trader said, "following the move last week in the junk paper." He said convert arbs were buying but the issue was "going up on low volume."

The stock was on a run Wednesday, too, which was attributed largely to short covering. Calpine shares closed up 21 cents, or 4.69%, to $4.69.

"There is an under current going on that seems to feel strongly that Calpine is ready to pop, so it would be pretty gutsy to sit on a short position," a buyside trader said. "What the savvy characters want to do is not cause a flood, slowly move this up."

Last week, Calpine said in a news release that with several states facing possible power supply shortages this summer, its portfolio of plants in operation, under construction and in development, could meet 15% of California's electricity capacity and that it produces 10% of California's natural gas needs.

Matria higher on asset sale

Feelings were mixed in regards to Matria Healthcare's asset sale, but the bottom line showed that its 4.875% convertibles moved up 5 points on the news.

The issue was quoted at 109.5 bid with the stock at $22.97 mid-afternoon Wednesday afternoon, up from prior levels of 104.625. The stock ended the day at $23.97, having added $2.90, or 13.76%, on the day.

Matria, a provider of comprehensive disease management programs to health plans and employers for chronic diseases and conditions such as diabetes, cardiovascular diseases, respiratory diseases, high-risk obstetrics, cancer, chronic pain and depression, said on Tuesday it had sold its diabetes and respiratory supplies, and medications fulfillment business to CCS Medical for $130 million. Matria will receive $102 million in cash and retain existing accounts receivable when the deal closes, which is expected on June 30.

"Looks to me like [the sale] was out of desperation," said a buyside convertible trader, noting the company said in order to continue in the diabetic and respiratory business the company would need to sell more debt, "debt that is unavailable to them."

The Marietta, Ga.-based company said it plans to use the proceeds to complete the tender offer for its 11% senior notes due 2008. Proceeds of the $75 million convertible sold in April were slated to go toward redeeming those junk bonds, too, but alone would have only partially funded the $122 million tender.

Nextel Partners in late-day run

The run in Nextel Partners was largely the result of rumors that Nextel Communications might make a move for it. Chatter in the bank loan market echoed the rumor as Nextel Communications was prepping to launch a new $4 billion bank revolver on Monday.

Nextel Partners' convertibles gained sharply along with the stock. The old 1.5% convertible due 2008 issue shot up about 8 points outright, or 5 points on swap, to a bid of 7 points over parity with the offer at 7.5 points over, a buyside trader said. The new 1.5% convertible due 2008 gained around 4 points outright, or 3 points on swap, to a bid of 19.5 points over parity with the offer at 20.25 points over.

The stock climbed 61 cents on the day, or 3.92%, to $16.17.

"NXTP has been on a winning streak. This was a late-day run, and rumor had it that a major hedge was short and went into panic mode," said a convertible dealer.

Nextel Partners also boosted its EBITDA guidance Tuesday. And, one trader observed that Nextel Communications is scheduled to make a presentation at a Wachovia Securities conference at 1 p.m. ET on Thursday.

Nextel Partners increased its 2004 adjusted EBITDA guidance to $340 million from $325 million, implying an 85% increase over 2003 adjusted EBITDA of $183.8 million.

Success at Nextel Partners, plus pressure on high-speed data, plus movement on the G3 front, would make a smart union for Nextel Communications, said the buyside trader.

"There is a lot of pressure on Nextel to make a decision, make a bold move, not just with something like Nextel Partners, but that is probably a smart move."

As buzz on the Nextel Communications revolver circulated through the bank loan market, similar remarks were heard.

"Why is a company that generates so much free cash flow, hundreds of millions of dollars of free cash flow, need a $4 billion revolver?" a bank loan market source told Prospect News. "I think they've got something in mind, I just don't know what it is. There's speculation that they might buy Nextel Partners. That has a $4 billion equity value."

ViroPharma exchange bombs

In the wake of ViroPharma Inc.'s exchange offer for its 6% convertibles, the notes were offered at 70, market sources said. That was off about 6 points from earlier in the week, one sellside source said.

On Tuesday, ViroPharma Inc. announced that its offer to exchange up to $99 million of new 6% convertible senior "plus cash" notes due 2009 for all of its $127.9 million 6% convertible subordinated notes due 2007 had expired Monday, unsuccessfully.

Market sources had been saying for months, almost ever since the exchange effort began in March, that the holders wanted more than the company was willing to pony up.

It was a condition of the exchange that at least 80% of holders participated in the offer. As of Monday, the company said only 3.7%, or $4.7 million, tendered.

ViroPharma previously extended the offer twice in order to hold informal discussions with significant noteholders about the terms, but the company said in a news release that the "terms proposed by the noteholders related to equity dilution and price were not acceptable."

When the terms were fixed June 17, one market source said there was nothing new and he was skeptical of it getting done at that time. Holders wanted at least $500 in cash and 258 shares whereas the company was offering 180.95 shares plus $500 in cash.

"`We have been proactive over the past two years in reducing our debt obligations due in March 2007 and we were hopeful that a broad restructuring initiative now would be successful and allow management to focus on ... business development initiatives," said Michel de Rosen, ViroPharma chief executive.

"This transaction, although not completed, has been instructive in better understanding the expectations of the current noteholders and our shareholders. Our intent is to find a solution that is fair to all parties and we believe one will be found that serves everyone's best interests prior to maturity of the outstanding notes."

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